A Historical Case for Capitalism Part 2

In part 1, I covered the criticism that capitalism is a flawed system because it creates economic inequality within the society.  But the analogy that the capitalist “tide does not raise all boats equally” actually has two parts; one expressed and the other implied.  By not going beyond the initial critique of capitalism, the opponent of the system is silently implying that the alternative he is proposing will address this flaw.  In this article, I will examine the past performance of the alternative systems to determine if they can produce the implied result of creating wealth for all.

To do this, we need to understand that all the alternative economic systems that are being pursued have their roots in Marxism.  This in itself does not make it good or bad.  It only means that we have about a 150 year track record to assess.  To some it may seem unfair to make a determination on the effectiveness of these alternatives, much less compare them to a system that has had 700 years to develop, but in those 150 years, the Marxist-based philosophies of communism, fascism, Nazism, and socialism have left an indelible mark.  Furthermore, that mark has been extraordinarily consistent in the results that are produced.

Last century marked the high point of the experiment with Marxism.  By the early 1900s, progressives around the world were aggressively promoting their versions of the Marxist dream.  Russia was their first success and after the Revolution of 1917 full-blown communism was established.  This was followed by success in Italy, which established the fascist version in 1922.  The depression of the 1930s offered the critics of capitalism a crisis to exploit and a chance to spread the Marxist philosophy to other countries.  They successfully convinced the people of many countries that capitalism was flawed and that their system was better by being more scientific, more enlightened, more perfect.   Although their greatest success was in Germany, with its own version called Nazism, many other countries of the world fell for the claims and embraced or adapted Marxist alternatives, including France which adopted the milder socialism.  

These Marxist-based, big government systems initially had some extremely remarkable success.  This was especially true of Nazism, which created what was hailed as the “German Miracle.”  At the height of the depression, Germany had almost 11 million unemployed; by 1938, unemployment was almost nonexistent.  Similar, though less dramatic, results were being achieved in Communist Russia (renamed the Soviet Union) and Fascist Italy.  This brought worldwide acclaim, especially from celebrities, academics, and media elites.  Many, jumping onto the Marxist bandwagon, flocked to view for themselves the new “workers’ paradise and utopias.”  They eagerly claimed that man had created the ideal economic system and that the antiquated, flawed, and cold-hearted Capitalism was dead.  The enthusiasm was so widespread that even the stalwarts of free-market economics, Britain and the Unites States, incorporated aspects of Marxism into their economies.

The fact is that the admirers of Mussolini, Stalin and Hitler had been thoroughly duped.  These ruthless leaders understood that their admirers (or “useful idiots” as Lenin would call them) would see only what they wanted to see. This voluntary blindness meant that those praising these dictators refused to recognize that the immense economic achievements of communism, fascism, and Nazism had more to do with the tyrannical practices of the government than it did with their economic systems.  In Germany, for example, women and Jews were excluded from employment and were replaced by male, non-Jewish workers.  Furthermore, since they were prevented from working, women and Jews were excluded from the unemployment count.  Soviet Russia’s success relied heavily on the slave labor of its Gulag system, and Stalin’s collectivization and industrialization programs resulted in the death of tens of millions of people.  Although it did result in a better standard of living for those who survived the “Great Terror,” that prosperity was paid for with the blood of its victims.

Winston Churchill was one of the few who were not blinded by the charade.  From the very beginning, he wailed against and warned of the dangers these systems posed to the world.  He recognized what insiders, such as the architect of the Nazi economic plan, Dr. Hjalmer Schacht, knew; that the Marxist economies could not be sustained since they could not generate the required wealth.  Once all the current wealth had been redistributed the society would begin to descend economically.  The only way to stave off such an outcome was to find new sources of wealth.  This set these three countries, plus fascist Japan, upon a course of imperialism and exploitation that makes capitalist imperialism look benign.  Within a decade, Marxist-based imperialism would kill, enslave, exploit, and pillage more people than the British Empire ever did in its almost 400 year history.  By the end of fascist Italy in 1944, Nazi Germany and fascist Japan in 1945, and Soviet Russia in 1989 over 100 million individuals would lose their lives to the wars, starvation, deprivation, and genocide these economic-political philosophies caused.

With such a conclusion, one would think that Marxism would be discredited and discarded forever.  But its supporters were quick to point out that the problem with communism, fascism, and Nazism is that they took Marxism too far to the extreme.  What was needed was capitalism mixed with the perfect amount of Marxism.  This hybrid system, called socialism, would use capitalism to create wealth and Marxism to distribute it.  In other words, capitalism would create the “tide” and Marxism would ensure that the tide “raised all the boats equally.”  It was perfect since it incorporated the best of both systems while eliminating their flaws.  

After the deprivations of the Second World War, the democracies of Western Europe were eager to restart their war-torn economies and Socialism appeared to be the ideal system.  By the 1950s, every country in non-communist Europe, from Spain to Sweden and Italy to Britain was socialist to one degree or another.  Once again, the new system showed promise.  In quick time, the war savaged economies rebounded and had growth rates on par with the United States.  The prosperity of these countries was considered proof of what could be accomplished with Socialism.  

Unfortunately, once again, the system demonstrated that it was not the panacea it promised to be.  The main flaw was that if the perfect combination of capitalism and Marxism could be found it could not be maintained.  One of the by-products of socialism is that the people became dependent on the government.  As that dependency grows the people feel more and more entitled to government services.  This sense of entitlement results in people placing more demands on the government.  In turn, the government feels compelled to meet the demands of its citizens, and the perfect balance between capitalism and Marxism is lost.  Additionally, the dependency on government means that once the balance is lost it is almost impossible regain.  (This last point is painfully evidenced by the riots and civil disturbances that have recently rocked Britain, France, Spain, Italy, Portugal, and, of course, Greece.)

Over time, this results in the decline of prosperity and societal wealth.  At a recent lecture Nobel Laureate and economist Robert Lucas points out that, for the first 70 years of the 20^th century, the economies of Western Europe grew at nearly the same rate as the United States.  That changed in the 1970s when the negative effects of socialism started to be felt.  During that time, Socialist Europe’s GDP per person dropped 30 percent, thus resulting in a 20 to 40 percent income gap between it and the United States.  This coincides with what Daniel Hannan writes in his book, The New Road to Serfdom.  In the book, he notes that Western (Socialist-based) Europe’s share of the World’s GDP shrunk from 36 percent in 1969 to 26 percent in 2009 and is projected to be only 15 percent in 2020.  During the same period, the United States share had remained steady at around 26 percent.  Additionally, in 1970 the unemployment rate of Western Europe was just above 2 percent while in the United States it was about 5 percent.  By the end of the decade the rates flipped and, for the rest of the century, Europe’s unemployment rate ranged from 2 to 3 percent higher than that of the United States. Today, several of the socialist economies of Europe are on the verge of total economic collapse.  Any attempt dial back the Marxist component of their economies is met with resistance by their government-dependent populations.  This opposition is often expressed with violent protests, civil disturbances and rioting that threatens to undermine the society as a whole.

  

History shows us that the claims of the critics of capitalism are valid.  That capitalism does not benefit all members of its society equally.  But there is nothing in history that indicates that their Marxist alternatives offer anything better.  The 20^th century experiment with Marxism ended as a complete and catastrophic failure.  The death, destruction, and deprivation it created resulted in the century being the most bloody and brutal in the history of man.  Even the socialist hybrid, by slow draining of wealth, has proved itself more of a bane than a boon for the societies that embrace it.  So, while the “tide” from the sea of wealth that capitalism creates does not “raise all boats equally,” it does raise all boats.  Whereas, the alternatives, rather than being oceans of wealth, create landlocked seas that, once drained, leave all boats stuck in the mire and muck.

The Occupy Wall St Movement: The Marxist Corruption of Liberalism

Like many Americans, I have been watching the Occupy Wall St. protest spread across the country.  I have been reading the signs and listening to the slogans the protesters carry and chant.  I have also watched as celebrities, politicians, and the MSM line up in support of the movement.  Through all this, I am struck how much Liberalism has been corrupted by Marxism.  I cannot help recalling the words one of my favorite essays:

              
                     My Creed

I do not choose to be a common man.

It is my right to be uncommon...if I can.

I seek opportunity...not security.

I do not wish to be a kept citizen,

humbled and dulled by having the state look after me.

I want to take the calculated risk;

to dream and to build,

to fail and to succeed.

I refuse to barter incentive for a dole.

I prefer the challenges of life to the guaranteed existence;

the thrill of fulfillment to the stale calm of utopia.

I will not trade freedom for beneficence

nor my dignity for a handout.

I will never cower before any master

nor bend to any threat.

It is my heritage to stand erect, proud and unafraid;

to think and act for myself,

enjoy the benefit of my creations

and to face the world boldly and say,

this I have done.

This essay could have been written by a TEA Partier or other Conservative “Right-winger.”  But it wasn’t.  It was written by Dean Alfange.  During the Great Depression of the 1930s, Mr. Alfange was the leader of the American Labor Party and in 1944 formed the Liberal Party.  Additionally, he held a chairmanship in Franklin Roosevelt’s successful campaign to be a three-term president.  He fervently opposed the GOP and ran several campaigns against them.  By any sense of the word, he was no “Right-Winger.” 

Now compare the words of this traditional Liberal (before the infection of Marxism) and those of the Occupy Wall Streeters and their supporters.  How far has Liberalism moved from its original principles!  The modern version has nothing to do with Liberating people and everything to do with enslaving them under the Marxist yoke.  That is why I call Modern Liberalism “Faux Liberalism.” 

The Road to Hell is Paved with Good Intentions

In a previous article, “Alternatives to Capitalism”, I offered the proposition that Socialism and the welfare state it produces eventually destroys the wealth of the society.  The reason for this is that the Marxism it is based on creates a situation where citizens become dependent on the government.  With each generation, that dependency grows and ever greater demands on placed on political leaders.  The result is that even if the government can create the ideal mix of capitalism and Marxism the redistribution of the wealth will eventually overcome the production of that wealth.  This can be clearly seen in the economic decline of Western Europe since the introduction of the welfare state 50 plus years ago, which has left most of those countries on the verge on economic collapse.

Unfortunately, we no longer need to look so far away to find further proof how even limited Marxism, in the form of the welfare state, grows uncontrollably until it threatens to destroy its host economy.  In a highly informative article called “The Road to a Downgrade” (July 28,2011) the Wall Street Journal details how Marxist-inspired programs, once introduced into America’s predominantly capitalist economy, grow beyond all expectations and projections.  Two examples are Medicare and Medicaid.

·         When Medicare was established in 1965, it was projected that the program would cost $12 billion in 1990.  The actual cost was $110 billion or almost 1000% more than projected.

·         In 1966, the cost of the Medicaid program was $4 billion or just over one-half of 1% of GDP.  By 1986, it had grown to $41 billion (just under 1% of GDP); last year it was $243 billion (1.67% of GDP).

As the article points out, it is more than rising medical costs that have increased the price tag of these programs.  Just like in Europe, Marxism has resulted in an increasing number of Americans becoming more dependent on government.  They demanded more benefits or entitlements and politicians, willing to trade taxpayer money for votes, were more than eager to oblige.  Over the years, the programs were expanded way beyond their original intents.  Even Social Security, initially designed to provide a safety net for those few seniors who were unable to provide for their own retirement, became a pension plan for all seniors.  In 1960, the cost of the plan was approximately 2% of GDP; in 2008, it had doubled to just over 4%. 

In 1965 total spending on entitlement programs made up about 35% of the federal budget.  Forty years later they have grown to be about 60% of the budget.  This clearly shows that if, by a miracle, politicians are able to create the perfect economy by introducing the ideal amount of Marxism into capitalism it does not stay that way for long.  Marxism will grow and slowly deplete the wealth of the society.  Now America, like its European counterparts, is facing an economic meltdown as Marxism takes its toll.  The question is do we, as Americans, continue to go down the Marxist road to perdition or do we return to the economic system that, for 700 years, has created wealth for its societies?

A Historical Argument for Capitalism Part 2: The Alternatives

In part 1, I covered the criticism that capitalism is a flawed system because it creates economic inequality within the society.  But the analogy that the capitalist “tide does not raise all boats equally” actually has two parts; one expressed and the other implied.  By not going beyond the initial critique of capitalism, the opponent of the system is silently implying that the alternative he is proposing will address this flaw.  In this article, I will examine the past performance of the alternative systems to determine if they can produce the implied result of creating wealth for all.

To do this, we need to understand that all the alternative economic systems that are being pursued have their roots in Marxism.  This in itself does not make it good or bad.  It only means that we have about a 150 year track record to assess.  To some it may seem unfair to make a determination on the effectiveness of these alternatives, much less compare them to a system that has had 700 years to develop, but in those 150 years, the Marxist-based philosophies of communism, fascism, Nazism, and socialism have left an indelible mark.  Furthermore, that mark has been extraordinarily consistent in the results that are produced.

Last century marked the high point of the experiment with Marxism.  By the early 1900s, progressives around the world were aggressively promoting their versions of the Marxist dream.  Russia was their first success and after the Revolution of 1917 full-blown communism was established.  This was followed by success in Italy, which established the fascist version in 1922.  The depression of the 1930s offered the critics of capitalism a crisis to exploit and a chance to spread the Marxist philosophy to other countries.  They successfully convinced the people of many countries that capitalism was flawed and that their system was better by being more scientific, more enlightened, more perfect.   Although their greatest success was in Germany, with its own version called Nazism, many other countries of the world fell for the claims and embraced or adapted Marxist alternatives, including France which adopted the milder socialism. 

These Marxist-based, big government systems initially had some extremely remarkable success.  This was especially true of Nazism, which created what was hailed as the “German Miracle.”  At the height of the depression, Germany had almost 11 million unemployed; by 1938, unemployment was almost nonexistent.  Similar, though less dramatic, results were being achieved in Communist Russia (renamed the Soviet Union) and Fascist Italy.  This brought worldwide acclaim, especially from celebrities, academics, and media elites.  Many, jumping onto the Marxist bandwagon, flocked to view for themselves the new “workers’ paradise and utopias.”  They eagerly claimed that man had created the ideal economic system and that the antiquated, flawed, and cold-hearted Capitalism was dead.  The enthusiasm was so widespread that even the stalwarts of free-market economics, Britain and the Unites States, incorporated aspects of Marxism into their economies.

The fact is that the admirers of Mussolini, Stalin and Hitler had been thoroughly duped.  These ruthless leaders understood that their admirers (or “useful idiots” as Lenin would call them) would see only what they wanted to see. This voluntary blindness meant that those praising these dictators refused to recognize that the immense economic achievements of communism, fascism, and Nazism had more to do with the tyrannical practices of the government than it did with their economic systems.  In Germany, for example, women and Jews were excluded from employment and were replaced by male, non-Jewish workers.  Furthermore, since they were prevented from working, women and Jews were excluded from the unemployment count.  Soviet Russia’s success relied heavily on the slave labor of its Gulag system, and Stalin’s collectivization and industrialization programs resulted in the death of tens of millions of people.  Although it did result in a better standard of living for those who survived the “Great Terror,” that prosperity was paid for with the blood of its victims.

Winston Churchill was one of the few who were not blinded by the charade.  From the very beginning, he wailed against and warned of the dangers these systems posed to the world.  He recognized what insiders, such as the architect of the Nazi economic plan, Dr. Hjalmer Schacht, knew; that the Marxist economies could not be sustained since they could not generate the required wealth.  Once all the current wealth had been redistributed the society would begin to descend economically.  The only way to stave off such an outcome was to find new sources of wealth.  This set these three countries, plus fascist Japan, upon a course of imperialism and exploitation that makes capitalist imperialism look benign.  Within a decade, Marxist-based imperialism would kill, enslave, exploit, and pillage more people than the British Empire ever did in its almost 400 year history.  By the end of fascist Italy in 1944, Nazi Germany and fascist Japan in 1945, and Soviet Russia in 1989 over 100 million individuals would lose their lives to the wars, starvation, deprivation, and genocide these economic-political philosophies caused.

With such a conclusion, one would think that Marxism would be discredited and discarded forever.  But its supporters were quick to point out that the problem with communism, fascism, and Nazism is that they took Marxism too far to the extreme.  What was needed was capitalism mixed with the perfect amount of Marxism.  This hybrid system, called socialism, would use capitalism to create wealth and Marxism to distribute it.  In other words, capitalism would create the “tide” and Marxism would ensure that the tide “raised all the boats equally.”  It was perfect since it incorporated the best of both systems while eliminating their flaws. 

After the deprivations of the Second World War, the democracies of Western Europe were eager to restart their war-torn economies and Socialism appeared to be the ideal system.  By the 1950s, every country in non-communist Europe, from Spain to Sweden and Italy to Britain was socialist to one degree or another.  Once again, the new system showed promise.  In quick time, the war savaged economies rebounded and had growth rates on par with the United States.  The prosperity of these countries was considered proof of what could be accomplished with Socialism. 

Unfortunately, once again, the system demonstrated that it was not the panacea it promised to be.  The main flaw was that if the perfect combination of capitalism and Marxism could be found it could not be maintained.  One of the by-products of socialism is that the people became dependent on the government.  As that dependency grows the people feel more and more entitled to government services.  This sense of entitlement results in people placing more demands on the government.  In turn, the government feels compelled to meet the demands of its citizens, and the perfect balance between capitalism and Marxism is lost.  Additionally, the dependency on government means that once the balance is lost it is almost impossible regain.  (This last point is painfully evidenced by the riots and civil disturbances that have recently rocked Britain, France, Spain, Italy, Portugal, and, of course, Greece.)

Over time, this results in the decline of prosperity and societal wealth.  At a recent lecture Nobel Laureate and economist Robert Lucas points out that, for the first 70 years of the 20^th century, the economies of Western Europe grew at nearly the same rate as the United States.  That changed in the 1970s when the negative effects of socialism started to be felt.  During that time, Socialist Europe’s GDP per person dropped 30 percent, thus resulting in a 20 to 40 percent income gap between it and the United States.  This coincides with what Daniel Hannan writes in his book, The New Road to Serfdom.  In the book, he notes that Western (Socialist-based) Europe’s share of the World’s GDP shrunk from 36 percent in 1969 to 26 percent in 2009 and is projected to be only 15 percent in 2020.  During the same period, the United States share had remained steady at around 26 percent.   Additionally, in 1970 the unemployment rate of Western Europe was just above 2 percent while in the United States it was about 5 percent.  By the end of the decade the rates flipped and, for the rest of the century, Europe’s unemployment rate ranged from 2 to 3 percent higher than that of the United States. Today, several of the socialist economies of Europe are on the verge of total economic collapse.  Any attempt dial back the Marxist component of their economies is met with resistance by their government-dependent populations.  This opposition is often expressed with violent protests, civil disturbances and rioting that threatens to undermine the society as a whole.  

History shows us that the claims of the critics of capitalism are valid.  That capitalism does not benefit all members of its society equally.  But there is nothing in history that indicates that their Marxist alternatives offer anything better.  The 20^th century experiment with Marxism ended as a complete and catastrophic failure.  The death, destruction, and deprivation it created resulted in the century being the most bloody and brutal in the history of man.  Even the socialist hybrid, by slow draining of wealth, has proved itself more of a bane than a boon for the societies that embrace it.  So, while the “tide” from the sea of wealth that capitalism creates does not “raise all boats equally,” it does raise all boats.  Whereas, the alternatives, rather than being oceans of wealth, create landlocked seas that, once drained, leave all boats stuck in the mire and muck.

A Historical Argument for Capitalism Part 1

The current economic crisis has intensified the fifty year assault on capitalism (also called free-market economics) to the point that even the average American is questioning if there is a better system.  He is beginning to wonder if the critics of capitalism are correct; that the free-market economy hurts the individual because it creates economic inequality by concentrating money in the hands of a few.  The common analogy that “a rising tide does not raise all boats equally” does seem to make sense.  After all, we are the wealthiest country in the world with people living in poverty.  It just does not seem fair! Something must be wrong! Maybe it is time to look for an alternative.  But where do we look? How do we know which alternative is the best?  As Americans, we would want a system that has a solid record of creating prosperity.  For that, we need to turn to history.  For, although past performance does not guarantee future results, it is an exceptionally reliable indicator.

Free-market economics has a track record of nearly 700 years.  During that span, it has proven itself to be the best economic system that humanity has ever conceived and a blessing for the average individual.  Although it is true that there are economic differences between individual members of a free-market society, history has proven that wherever it is practiced it produces a society that is as a whole much wealthier than that of any alternative system.  In his book, The Origins of English Individualism, anthropologist Alan Macfarlane details how by the mid-1300s England had developed a free-market economy.  He further notes that, around the same time, there was remarkably little evidence of a peasantry within England.  This does not mean that there was not a poor or servant class, which there was.  But that class differed from the typical peasant model found in the rest of the world.  Even in class conscientious England, there was a social and economic mobility that would not be seen on continental Europe for another 500 years.  In fact, traditional peasant societies, which lacked social and economic mobility, were still firmly in place up until the 19^th century in Western Europe (including France) and as late as the 20^th century in Eastern Europe.

History shows that this socioeconomic mobility benefitted the population as a whole.  Even the poorest individual in the society had the potential of changing his station in life or, at least, make preparations for his children to do so.  This was incentive enough for most individuals to work towards creating a better life for themselves.  Those who were ambitious found that with sacrifice and hard work they could move up from the son of a servant to being the master.  While such drastic leaps were not common, records of the time demonstrate that the upward mobility of individuals was the norm rather than the exception.  A family could move from the lower class through middle class and into upper-class within a couple of generations.  

While it is true that capitalism does create economic disparity, the less able, the less willing, and the less ambitious are not excluded from its benefits.  The system creates a societal wealth that allows even its poorest members to live reasonably well when compared to those in non-capitalistic societies. Between 1300 and 1600, the wealth of English society grew to the point that the lifestyle of the poorest Englander was vastly superior to that of his continental counterpart.   He ate more meat, had better dwellings, and, more importantly, had the ability (freedom) to change his lot in life.  Visiting foreigners would be amazed at how well the lower classes of England lived compared to that of their homeland. This is similar to what we experience in modern day America.  Americans living in “poverty” have a standard of living that is the envy of many living in non-capitalistic countries.  When referring to Britain Alexis De Tocqueville rhetorically asked, “Is there any single country in Europe, in which the national wealth is greater, private property is more extensive, more secure, more varied in character, society more settled and more wealthy?” This same question could be applied to 21^st century America.

Capitalism has proven track record that spans almost seven centuries.  It has demonstrated over and over again to benefit any society that embraces it.  The common free-market heritage of America, Australia, New Zealand, and Canada are evidence of this.  Throughout the history of the countries, there was never a peasant class and, today, all of them are considered first-world nations whose citizens enjoy extremely high standards of living.  This cannot be said for any of the former colonies of France and Spain, both of which were countries that were antagonistic towards capitalism.  The Dutch had no such qualms and, in 16^th century, wisely adopted free-market economics.  By the 17^th century, their wealth made them the “bankers of the world.”  So, while the tide may not raise all the boats equally, it does raise all boats.  How high each boat rises depends on the individual in charge of it. 

But is there a better alternative to capitalism?  In A Historical Argument in Favor of Capitalism Part 2 I will analyze the historical record of alternative economic systems to see if they live up to the promise of creating wealth for all.